What Does FIRE Mean?
If you’ve spent any time in the personal finance space, you’ve probably come across the term FIRE — it stands for “Financial Independence, Retire Early.” But what exactly is FIRE, and is it a lifestyle you should consider? Let’s dive into what FIRE is and whether it might be right for you.
What is FIRE?
FIRE is a lifestyle movement that focuses on achieving financial independence as quickly as possible, so you can retire earlier than the traditional retirement age. The goal is to save aggressively and live frugally, which allows you to retire much earlier than most people — sometimes even in your 30s.
This lifestyle has a natural appeal to the Childfree community, where people are already breaking free from traditional expectations about family and life choices. Since you’re not focusing on raising children, you may feel free to explore different ways to shape your future, including a life where early retirement is possible.
The term FIRE first emerged from Joe Dominguez and Vicki Robin’s 1992 book Your Money or Your Life. They advocated for a shift in how people view money, encouraging individuals to prioritize their own goals and values. For many people, FIRE means achieving the freedom to stop working for money altogether — a true “off switch” for work (as opposed to Dr. Jay’s FILE, which is more of a “dimmer switch” approach to work).
Different Types of FIRE
There are several variations of FIRE depending on how aggressively you want to pursue financial independence. The two main types are:
- Lean FIRE: This is the most extreme version, where you drastically reduce your expenses, cutting costs as much as possible. For some, this might mean living with roommates well into adulthood, subsisting on budget meals like rice and beans, and even making your own household products. The goal here is to save and invest every penny so you can retire early with minimal income.
- Fat FIRE: This version is for those who want to live a more comfortable, high-quality life during retirement. Participants aim to save large sums of money and create multiple streams of passive income. Fat FIRE enables people to live a luxurious retirement, possibly with a private chef and a lifestyle that includes traveling or living abroad.
While the idea of quitting your job and living off your savings early is appealing, there are some important factors to consider before deciding to take the plunge into FIRE.
Why Are You Retiring Young?
One key question to ask yourself before jumping into FIRE is, “What am I retiring to?” Early retirement sounds wonderful, but you’ll need a plan for the decades ahead. If you still want to work in some capacity, then FILE might be a better approach for you. This is often referred to as “barista FIRE,” where you take on a less demanding job simply to get benefits or for social interaction, without the stress of a high-powered career.
If you’re not working to support a family or raising children, early retirement might seem even more tempting. However, consider how you’ll spend all that extra time. Many FIRE adherents find themselves lonely or bored if their loved ones are still working, so it’s important to think about how you’ll fill your days and keep yourself engaged in meaningful ways.
Financial Planning for FIRE
If FIRE is something you’re seriously considering, you’ll need to have a solid financial plan in place. The basics — paying off debt, saving, budgeting, and investing — still apply, but the specifics of FIRE require careful planning.
The first step is calculating how much you’ll need to live on each year during retirement. Typically, people planning for FIRE aim for a savings target that allows them to live on a 4% annual withdrawal rate. For example, if you want to live on $40,000 a year, you’d need to save $1 million to sustain that lifestyle. However, a few things could complicate this:
- Location: The cost of living can vary greatly depending on where you live. Some places might make your FIRE savings stretch further, while others may not.
- The 4% Rule: This rule is often debated in financial circles, and with inflation and other market factors, it may not be as sustainable as it once was.
Another major consideration is health insurance. If you retire before you qualify for Medicare, you’ll need to find affordable healthcare coverage, which can be expensive. Depending on your financial situation, you might qualify for marketplace subsidies, but it’s something you’ll need to plan for carefully.
Additionally, you’ll need to ensure that your retirement savings are accessible before the traditional retirement age of 59 ½. Many tax-advantaged accounts (like IRAs) penalize early withdrawals, so it’s important to have accounts that give you more flexibility, like Roth IRAs or taxable brokerage accounts.
Working with a CERTIFIED FINANCIAL PLANNER™ is highly recommended when pursuing FIRE, as they can help you navigate these complexities and set you on the right track to financial independence.